Purchase of Real Estate in Nicaragua
The first step to buying real estate in Nicaragua is to forget everything you know about the process in your home country… no matter where your home is located.
Let me make one thing clear up front. There are incredible offers to buy properties in Nicaragua. In fact, there is no other market in the Americas where it is reasonable to insist on a return on investment of 40% or more. However, there are few similarities between the rules and regulations that govern the real estate industries in North America or Europe and Nicaragua. It is because of this lack of similarities that foreign investors often get into trouble. There is a preconceived notion on the part of foreigners that the real estate industry in Nicaragua is as carefully regulated as elsewhere, and it is this incorrect assumption that leads to foreign investors being misled. The one universal real estate investment rule that applies equally in Nicaragua as it does anywhere else is Caveat emptor, buyer beware.
Real Estate Brokers
Basically, there is no such thing in Nicaragua as a real estate broker that a Canadian, American, or European would assume the term represents. There are real estate brokerage offices. Some even have familiar franchise names, but that’s where the similarity ends.
There is no required formal training for real estate salespeople, nor are there any specific licensing requirements. Anyone can become a “real estate agent” by paying for a merchant’s license or by incorporating a Nicaraguan company. I’m not suggesting that this means that “all” real estate salespeople are incompetent or untrained…many are. In fact, there are several retired real estate agents who have moved to Nicaragua and are running successful and reputable businesses. However, there are many more who are less than competent and operate on a knife edge between honest business and outright fraud. Emptor warning again!
There are no district or federal regulatory boards that govern the real estate industry. Real estate sales are no more regulated than the sale of a vehicle by a traveling salesman. The authorities are not ignoring the outright criminality, but jailing the perpetrators is unlikely to result in the recovery of lost money. However, revenge should make a fleeced buyer feel better. Nicaraguan prisons exist to punish criminals, not to rehabilitate them, and they are Hell on Earth. Unfortunately, however, most issues that can arise in a real estate transaction are considered civil matters by the police and should be treated as such. In short, any money you think was stolen from you… consider it lost. Even with a judgment in favor of the plaintiff, collection of money owed on a judgment rarely occurs. So again caveat emptor.
A serious deficiency in the Nicaraguan real estate market is that there is no such thing as a Multiple Listing Service (MLS). The lack of any form of MLS means that there is no central registry of properties for sale, nor any information about the sale price of a property. The result is that it is very difficult to decide how much a home or commercial building is worth in a particular neighborhood, as there are no comparable property transactions to use as a guide. Appraisers base their valuations primarily on replacement cost, and anything else they provide is pure guesswork. Ironically, banks require appraisals created by licensed Nicaraguan appraisers if applying for mortgage financing.
There is no such thing in Nicaragua as a listing similar to what most foreigners would understand the term to mean. Real estate buyers will hear a real estate agent say that he or she has a listing, but it is common to see two or more real estate signs on a single property. Similarly, the same property may appear on multiple real estate company websites and be advertised online by numerous different people. More confusing, advertised prices can vary for the same house, sometimes by tens of thousands of dollars. Nicaraguans who sell their homes rarely lock themselves into an agreement with one of the parties that wants to sell their land, house, or commercial building. If you want to sell something, it is assumed that the more people trying to sell it, the better. And for more people who can be real estate agents, the owner himself, his family and friends, a neighbor, or a horse-drawn coachman. This seems chaotic to a foreigner looking for a retirement or vacation home, but it makes a lot of sense to Nicaraguans. Without an MLS service that allows numerous real estate agents to show potential buyers a listed property, letting everyone try to sell a property seems like the best way to gain exposure.
Another misconception that foreign buyers have when buying real estate in Nicaragua is that the seller pays the real estate agent. This is sometimes the case, but even when it is, the buyer may be asked to pay the commission. Yes, this is legal in Nicaragua. In fact, not only could there be a commission paid by the seller and the buyer, but the real estate agent may have added an amount to what the seller really wants in his hand. This is also legal. The worst case scenario is that the seller wants $50,000 for his house. Sellers offer anyone who sells the house $1,000 or a percentage. The real estate sales agent lists the house for $59,900, which allows room for negotiation. A buyer settles US$55,000 but is told that in Nicaragua the buyer pays the commission. It’s not really the truth, but it’s common enough that people think it’s a rule. The requested commission can be up to 10%, or it can be a flat fee. Once all is said and done and the buyer agrees to purchase the property for US$55,000. In a case like this, the ‘agent’ will insist on a non-refundable down payment of US$5,000. At closing, the seller receives the $50,000 he wanted and the selling agent pockets the rest.
I know of a buyer who gave a ‘real estate agent’ $65,000 to buy a 3-acre farm with a small house on the property. The ‘real estate agent’ then went to the property owner and paid him US$20,000 to buy the land. It gets worse…the ‘realtor’ never bothered to transfer title until the buyer found out he wasn’t the owner when he tried to pay back taxes. In the end, the property was bought by a developer for just over the original $65,000, but 8 years of appreciation later. In another case, Europeans bought a house and overpaid $85,000. Of course, by basing their offer on known European real estate values, it was assumed that they were getting a bargain. The ‘realtor’ pocketed the US$85,000 and a commission that he also charged for the purchase. Again, perfectly legal in Nicaragua… so caveat emptor.
The way to navigate through what foreigners see as market chaos is to use an expert real estate consultant to find the property you want, negotiate the price, terms and conditions, perform the necessary due diligence, validate title and survey, and so on. This is a fee-based service, but much less expensive than a percentage sales commission, and much, much less than a costly mistake would be. One of those services is Nica Investments, a real estate consultancy that helps foreign investors buy real estate or businesses in Nicaragua.